It seems that Durb's populist rhetoric doesn't even get the support from the St Louis Post-Dispatch!!! This is just a stunning Op-Ed:
OUR VIEW: OIL: Oil company profits are what keep supplies steady
Monday, Oct. 31 2005
Oil companies are rolling in money these days, and Sen. Richard Durbin, D-Ill., wants to take some of it away from them. Mr. Durbin is one of several members of Congress proposing excess profits taxes on oil companies.
The idea is excellent populist politics and lousy economics. It's a bad idea that would ultimately leave us with higher gasoline prices and tie us even more tightly to the unstable oil states of the Middle East.
It is true that oil companies are celebrating a profit gusher. Last week, ExxonMobil reported quarterly profits up 75 percent to $9.9 billion. Shell's take is up 68 percent to $9.04 billion.
Figures like that stick in the craw of all of us with sticker shock at the pump: $50 for a tank of gas! But those sky-high profits now will help ensure a steady supply of oil in the future.
Gasoline is expensive for two reasons: Demand for oil is exceeding our ability to pump it. The world's wells are running flat out and there's still not enough to meet growing world demand. On top of that, there's a shortage of American refineries to turn oil into gasoline. Refineries were running at 96 percent capacity before two major hurricanes knocked several off-line this summer. That, more than the price of oil, was why gasoline prices soared over $3 per gallon this summer.
In the long run, the answer is to use less oil by conserving, investing in public transit and designing vehicles that are more fuel-efficient. Mandatory higher mileage standards are essential.
But in the short term, the key to price relief is to dig more oil wells and expand refineries. Oil companies will do those things if they are highly profitable.
After all, oil drilling is a risky business, and refineries cost billions. Today's profit levels provide a great incentive to drill and build. But companies must also take gamble on what oil prices may be when new wells and refineries come on line. Long experience with the ups and downs of oil prices have taught oil executives to bet cautiously. That, along with the Gordian knot of regulatory red tape, helps explain why no new refinery has been built in America since the 1970s.
Taxing away the chance of high profits lowers the potential reward for investment in production. There'll be less drilling and building. The result: High gas prices for years to come.
Mr. Durbin's plan would siphon off half the profits that result when oil exceeds $40 per barrel. It sold for $64 on Friday. At today's prices, the tax may yield about $33 billion a year. He'd send $150 checks to consumers and fund energy assistance for low-income families. He'd pour $1 billion into improving fuel efficiency for cars, and spend money relieving highway congestion.
Those are all great ideas, but they won't bring American consumers what they want now - immediate price relief - and they won't guarantee supply in the future. Mr. Durbin is one of the most progressive thinkers in the Senate. But with the friends the oil companies have in high places, and the cold hard facts of supply and demand, his noble ideas won't get very far.
While there's some Leftist assumptions in there, it's great to see the Post-Dispatch actually discuss market forces in the industry. While gasoline prices have been high, we haven't had any shortages and that's precisely because folks like Durbin aren't running this country. Short term price shocks are tough for any economy, but our economy and consumer spending don't appear to have been affected based on 3rd Quarter economic data :
The U.S. economy grew at a robust 3.8% annualized rate in the third quarter, marking the 16th consecutive quarter of growth and confirming that the economy weathered the hurricanes that devastated the Gulf Coast.
Price inflation remained tempered, with wages and consumer prices excluding food and energy relatively low. A widely watched gauge of consumer confidence fell in October.
The Commerce Department said Friday that growth in the third-quarter gross domestic product, the total value of goods and services produced in the U.S., outpaced the 3.3% rate in the second quarter. Increased consumer and federal-government spending contributed heavily to the increase, while residential and nonresidential construction slowed and inventories declined. Exports also decelerated, while imports remained unchanged.
Treasury Secretary John Snow, in an interview Friday with The Wall Street Journal, said, "it really does reflect something powerful going on inside this huge engine that we call the American economy that we can take the blows that hit us late August and September and continue rolling through it. It really is a remarkable thing how resilient this economy is."
"Without Katrina, this 3.8 would have probably been something into the mid 4s," said Michael Strauss, chief economist of Commonfund Group, an investment firm serving nonprofit organizations.
Let's just hope that more than 50% of the people in Congress have a better understanding of economics than Senator Durbin.
ARC: St Wendeler